msci-10q_20190331.htm

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 26, 2019, there were 84,678,661 shares of the registrant’s common stock, par value $0.01, outstanding.

MSCI Inc. files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). The SEC maintains a website that contains annual, quarterly and current reports, proxy and information statements and other information that issuers (including MSCI Inc.) file electronically with the SEC. MSCI Inc.’s electronic SEC filings are available to the public at the SEC’s website, www.sec.gov.

MSCI Inc.’s website is www.msci.com. You can access MSCI Inc.’s Investor Relations homepage at http://ir.msci.com. MSCI Inc. makes available free of charge, on or through its Investor Relations homepage, its proxy statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. MSCI Inc. also makes available, through its Investor Relations homepage, via a link to the SEC’s website, statements of beneficial ownership of MSCI Inc.’s equity securities filed by its directors, officers, 5% or greater shareholders and others under Section 16 of the Exchange Act.

You can access information about MSCI Inc.’s corporate governance at http://ir.msci.com/corporate-governance.cfm, including copies of the following:

MSCI Inc.’s Code of Ethics and Business Conduct applies to all directors, officers and employees, including its Chief Executive Officer and its Chief Financial Officer. MSCI Inc. will post any amendments to the Code of Ethics and Business Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange LLC on its website. You can request a copy of these documents, excluding exhibits, at no cost, by contacting Investor Relations, MSCI Inc., 7 World Trade Center, 250 Greenwich Street, 49th Floor, New York, NY 10007; (212) 981-1074. The information on MSCI Inc.’s website is not incorporated by reference into this report or any other report filed or furnished by us with the SEC.

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” or the negative of these terms or other comparable terminology. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and that could materially affect our actual results, levels of activity, performance or achievements.

Other factors that could materially affect actual results, levels of activity, performance or achievements can be found in the 2018 Annual Report on Form 10-K filed with the SEC on February 22, 2019 and in quarterly reports on Form 10-Q and current reports on Form 8-K filed or furnished with the SEC. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what MSCI projected. Any forward-looking statement in this report reflects MSCI’s current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to MSCI’s operations, results of operations, growth strategy and liquidity. MSCI assumes no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise, except as required by law.

MSCI Inc. uses its website, blog, podcasts and social media channels, including its corporate Twitter account (@MSCI_Inc) as channels of distribution of company information. The information MSCI Inc. posts through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following MSCI Inc.’s press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about MSCI Inc. when you enroll your email address by visiting the “Email Alerts Subscription” section of our Investor Relations homepage at http://ir.msci.com/alerts.cfm?. The contents of MSCI Inc.’s website, blog, podcasts and social media channels are not, however, incorporated by reference into this report or any other report filed or furnished by us with the SEC.

	As of
	March 31,			December 31,
	2019			2018
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	642,781		$	904,176
Accounts receivable (net of allowances of $707 and $1,027 at March 31, 2019 and December 31, 2018, respectively)		427,099			473,433
Prepaid income taxes		72,505			19,273
Prepaid and other assets		35,541			38,207
Total current assets		1,177,926			1,435,089
Property, equipment and leasehold improvements (net of accumulated depreciation and amortization of $189,603 and $185,505 at March 31, 2019 and December 31, 2018, respectively)		86,087			90,877
Right of use assets		170,573			—
Goodwill		1,546,961			1,545,761
Intangible assets (net of accumulated amortization of $554,183 and $541,967 at March 31, 2019 and December 31, 2018, respectively)		274,576			280,803
Deferred tax assets		20,211			14,903
Other non-current assets		19,231			20,519
Total assets	$	3,295,565		$	3,387,952

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,099		$	3,892
Income taxes payable		10,422			16,253
Accrued compensation and related benefits		55,884			137,045
Other accrued liabilities		127,406			113,841
Deferred revenue		524,988			537,977
Total current liabilities		720,799			809,008
Long-term debt		2,576,388			2,575,502
Long-term operating lease liabilities		168,487			—
Deferred tax liabilities		79,598			82,008
Other non-current liabilities		66,801			87,928
Total liabilities		3,612,073			3,554,446

Commitments and Contingencies (see Note 7 and Note 9)

Shareholders' equity (deficit):
Preferred stock (par value $0.01, 100,000,000 shares authorized; no shares issued)		—			—
Common stock (par value $0.01; 750,000,000 common shares authorized; 132,265,024 and 130,029,926 common shares issued and 84,675,001 and 84,174,138 common shares outstanding at March 31, 2019 and December 31, 2018, respectively)		1,323			1,300
Treasury shares, at cost (47,590,023 and 45,855,788 common shares held at March 31, 2019 and December 31, 2018, respectively)		(3,557,270	)		(3,272,774	)
Additional paid in capital		1,316,837			1,306,428
Retained earnings		1,979,804			1,856,951
Accumulated other comprehensive loss		(57,202	)		(58,399	)
Total shareholders' equity (deficit)		(316,508	)		(166,494	)
Total liabilities and shareholders' equity (deficit)	$	3,295,565		$	3,387,952

	Three Months Ended
	March 31,
	2019			2018
	(unaudited)
Operating revenues	$	371,381		$	351,316

Operating expenses:
Cost of revenues		82,346			71,304
Selling and marketing		56,048			46,409
Research and development		23,172			20,707
General and administrative		27,497			26,187
Amortization of intangible assets		11,793			11,338
Depreciation and amortization of property, equipment and leasehold improvements		7,850			8,205
Total operating expenses		208,706			184,150

Operating income		162,675			167,166

Interest income		(4,086	)		(2,770	)
Interest expense		35,915			29,560
Other expense (income)		2,554			938

Other expense (income), net		34,383			27,728

Income before provision for income taxes		128,292			139,438
Provision for income taxes		(49,900	)		24,346
Net income	$	178,192		$	115,092

Earnings per basic common share	$	2.11		$	1.28

Earnings per diluted common share	$	2.08		$	1.24

Weighted average shares outstanding used in computing earnings per share
Basic		84,253			90,075
Diluted		85,649			92,587

	Three Months Ended
	March 31,
	2019			2018
	(unaudited)
Net income	$	178,192		$	115,092
Other comprehensive (loss) income:
Foreign currency translation adjustments		1,533			3,962
Income tax effect		(347	)		—
Foreign currency translation adjustments, net		1,186			3,962

Pension and other post-retirement adjustments		20			(100	)
Income tax effect		(9	)		27
Pension and other post-retirement adjustments, net		11			(73	)

Net investment hedge adjustments		—			123
Income tax effect		—			—
Net investment hedge adjustments, net		—			123
Other comprehensive (loss) income, net of tax		1,197			4,012
Comprehensive income	$	179,389		$	119,104

											Accumulated
						Additional					Other
	Common		Treasury			Paid-in		Retained			Comprehensive
	Stock		Stock			Capital		Earnings			Income (Loss)			Total
	(unaudited)
Balance at December 31, 2018	$	1,300	$	(3,272,774	)	$	1,306,428	$	1,856,951		$	(58,399	)	$	(166,494	)
Net income									178,192						178,192
Dividends declared ($0.58 per common share)									(55,339	)					(55,339	)
Dividends paid in shares							93								93
Other comprehensive income (loss), net of tax												1,197			1,197
Common stock issued		23													23
Shares withheld for tax withholding and exercises				(182,385	)										(182,385	)
Compensation payable in common stock and options							9,590								9,590
Common stock repurchased and held in treasury				(102,081	)										(102,081	)
Common stock issued to directors and held in treasury				(30	)										(30	)
Exercise of stock options							726								726
Balance at March 31, 2019	$	1,323	$	(3,557,270	)	$	1,316,837	$	1,979,804		$	(57,202	)	$	(316,508	)

Balance at December 31, 2017	$	1,295	$	(2,321,989	)	$	1,264,849	$	1,505,204		$	(48,347	)	$	401,012
Net income									115,092						115,092
ASC 606 Retained Earnings Adjustment									16,135						16,135
Dividends declared ($0.38 per common share)									(34,848	)					(34,848	)
Dividends paid in shares							35								35
Other comprehensive income (loss), net of tax												4,012			4,012
Common stock issued		5													5
Shares withheld for tax withholding and exercises				(22,932	)										(22,932	)
Compensation payable in common stock and options							11,123								11,123
Common stock repurchased and held in treasury				(68,345	)										(68,345	)
Common stock issued to directors and held in treasury				(17	)										(17	)
Exercise of stock options							102								102
Balance at March 31, 2018	$	1,300	$	(2,413,283	)	$	1,276,109	$	1,601,583		$	(44,335	)	$	421,374

	Three Months Ended
	March 31,
	2019			2018
	(unaudited)
Cash flows from operating activities
Net income	$	178,192		$	115,092
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets		11,793			11,338
Stock-based compensation expense		9,541			9,053
Depreciation and amortization of property, equipment and leasehold improvements		7,850			8,205
Amortization of right of use assets		5,583			—
Amortization of debt origination fees		986			849
Deferred taxes		(8,397	)		(1,097	)
Other non-cash adjustments		(200	)		321
Changes in assets and liabilities:
Accounts receivable		46,805			(134,801	)
Prepaid income taxes		(53,613	)		13,626
Prepaid and other assets		406			192
Accounts payable		(1,793	)		(230	)
Accrued compensation and related benefits		(81,170	)		(84,517	)
Income taxes payable		(5,843	)		3,001
Other accrued liabilities		(7,107	)		(1,516	)
Deferred revenue		(13,352	)		148,468
Other		(1,806	)		613
Net cash provided by operating activities		87,875			88,597

Cash flows from investing activities
Capital expenditures		(3,156	)		(1,512	)
Capitalized software development costs		(4,990	)		(4,360	)
Proceeds from the sale of capital equipment		10			—
Net cash used in investing activities		(8,136	)		(5,872	)

Cash flows from financing activities
Proceeds from exercise of stock options		726			102
Repurchase of treasury shares		(284,466	)		(91,277	)
Payment of dividends		(57,895	)		(34,883	)
Net cash used in financing activities		(341,635	)		(126,058	)

Effect of exchange rate changes		501			3,659

Net decrease in cash		(261,395	)		(39,674	)
Cash and cash equivalent, beginning of period		904,176			889,502

Cash and cash equivalent, end of period	$	642,781		$	849,828

Supplemental disclosure of cash flow information:
Cash paid for interest	$	35,148		$	35,121
Cash paid for income taxes	$	17,312		$	8,602

Supplemental disclosure of non-cash investing activities
Property, equipment and leasehold improvements accrued, but not yet paid	$	2,848		$	3,101

Supplemental disclosure of non-cash financing activities
Cash dividends declared, but not yet paid	$	237		$	337

MSCI Inc., together with its wholly-owned subsidiaries (the “Company” or “MSCI”) provides critical investment decision support tools and services for the global investment community. MSCI is dynamic and flexible in the delivery of content and capabilities, such as indexes; portfolio construction tools and risk management services; environmental, social and governance (“ESG”) research and ratings; and real estate benchmarks, return analytics services and market insights; much of which can be accessed by clients through multiple channels and platforms.

These unaudited condensed consolidated financial statements include the accounts of MSCI and its subsidiaries and include all adjustments of a normal, recurring nature necessary to state fairly the financial condition as of March 31, 2019 and December 31, 2018, the results of operations, comprehensive income and shareholders’ equity (deficit) for the three months ended March 31, 2019 and 2018 and cash flows for the three months ended March 31, 2019 and 2018. The unaudited condensed consolidated statement of financial condition and related financial statement information as of December 31, 2018 have been derived from the 2018 audited consolidated financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in MSCI’s Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for interim periods are not necessarily indicative of results for the entire year.

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with GAAP. These accounting principles require the Company to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Significant estimates and assumptions made by management include the deferral and recognition of revenue, research and development and software capitalization, impairment of long-lived assets, accrued compensation, income taxes, incremental borrowing rates and other matters that affect the unaudited condensed consolidated financial statements and related disclosures. The Company believes that estimates used in the preparation of these unaudited condensed consolidated financial statements are reasonable; however, actual results could differ materially from these estimates. Intercompany balances and transactions are eliminated in consolidation.

For the three months ended March 31, 2019 and 2018, BlackRock, Inc. accounted for 11.6% and 12.9% of the Company’s consolidated operating revenues, respectively. For the three months ended March 31, 2019 and 2018, BlackRock, Inc. accounted for 19.3% and 22.1% of the Index segment operating revenues, respectively. No single customer represented 10.0% or more of operating revenues within the Analytics and All Other segments for the three months ended March 31, 2019 and 2018.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases (Topic 842),” or ASU 2016-02. The FASB issued ASU 2016-02 in order to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the FASB amended the FASB Accounting Standards Codification and created Topic 842, Leases. ASU 2016-02 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2018.

In July 2018, the FASB issued Accounting Standards Update No. 2018-10, “Codification Improvements to Topic 842, Leases,” or ASU 2018-10, and Accounting Standards Update No. 2018-11, “Targeted Improvements,” or ASU 2018-11. The amendments in ASU 2018-10 include how an entity should perform the lease classification reassessment, a clarification that a change in a reference index or rate upon which some or all of the variable lease payments in the contract are based does not constitute the resolution of a contingency and a clarification as to whether to recognize a transition adjustment in earnings rather than through equity when an entity initially applies Topic 842 retrospectively to each prior reporting period. The amendments in ASU 2018-11 provide an optional transition method that permits an entity to initially apply the new guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and not recast comparative periods. As a result, prior period financial statements and disclosures will continue to be presented in accordance with ASC Topic 840. In addition, ASU 2018-11 also includes a practical expedient for lessors to not separate the lease and non-lease components of a contract. The effective date for this amendment is the same as ASU 2016-02 discussed above.

The Company adopted ASU 2016-02 effective January 1, 2019 using the optional transition method available under ASU 2018-11. In preparation for adoption of the guidance, the Company implemented internal controls and processes to enable the preparation of financial information. MSCI elected to apply the transition package of practical expedients permitted within the new guidance which, among other things, allowed the Company to carry forward the historical lease classification. In addition, MSCI elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company made an election to apply the exemption allowed under ASU 2016-02 for leases with an initial term of 12 months or less to not be recorded in the Condensed Consolidated Statement of Financial Condition and to only recognize the related amounts in the Condensed Consolidated Statement of Income on a straight-line basis over the lease term. See Note 8, “Leases” of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding leases.

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” or ASU 2018-15, to help entities evaluate the accounting for costs of implementation activities incurred in a cloud computing arrangement that is a service contract. ASU 2018-15 aligns the requirements for deferring implementation costs incurred in a cloud computing arrangement that is a service contract with those incurred to develop or obtain internal-use software. ASU 2018-15 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2019, with early adoption permitted. The Company early-adopted ASU 2018-15 under the prospective transition method effective January 1, 2019. The adoption of ASU 2018-15 did not have a material effect on the Company’s condensed consolidated financial statements.

MSCI’s revenues are characterized by type, which broadly reflects the nature of how they are recognized or earned. The Company’s revenue types are recurring subscription, asset-based fees and non-recurring revenues. The Company also groups its revenues by segment.

The tables that follow present the disaggregated revenues for the periods indicated (in thousands):

The amount of revenue recognized in the period that was included in the opening current deferred revenue, which reflects contract liability amounts, was $168.6 million. The difference between the opening and closing balances of the Company’s deferred revenue was primarily driven by an increase in the amortization of deferred revenue to operating revenues, partially offset by an increase in billings. MSCI had an insignificant long-term deferred revenue balance as of March 31, 2019 reflected as a part of “Other non-current liabilities” on its Unaudited Condensed Consolidated Statement of Financial Condition.

For contracts that have a duration of one year or less, the Company has chosen to use the practical expedient available under the new revenue standard and, as such, has not disclosed either the remaining performance obligation as of the end of the reporting period or when the Company expects to recognize the revenue. The remaining performance obligations for contracts that have a duration of greater than one year and the periods in which they are expected to be recognized are as follows:

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Common shares outstanding include common stock and vested restricted stock unit awards where recipients have satisfied either the explicit vesting terms or retirement-eligible requirements. Diluted EPS reflects the assumed conversion of all dilutive securities. There were an immaterial number of anti-dilutive securities excluded from the calculation of diluted EPS for all periods presented.

Delaware		13-4038723
(State of Incorporation)		(I.R.S. Employer Identification Number)

7 World Trade Center 250 Greenwich Street, 49^th Floor New York, New York		10007
(Address of Principal Executive Offices)		(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, par value $0.01 per share		MSCI		New York Stock Exchange

		Page
	Part I
Item 1.	Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40

	Part II
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43

	For the Three Months ended March 31, 2019
	Segments
	Index		Analytics		All Other		Total
Product Types
Recurring subscriptions	$	127,674	$	120,110	$	34,580	$	282,364
Asset-based fees		81,808		—		—		81,808
Non-recurring		5,291		1,325		593		7,209
Total	$	214,773	$	121,435	$	35,173	$	371,381

	For the Three Months ended March 31, 2018
	Segments
	Index		Analytics		All Other		Total
Product Types
Recurring subscriptions	$	113,205	$	118,244	$	29,367	$	260,816
Asset-based fees		85,483		—		—		85,483
Non-recurring		3,226		743		1,048		5,017
Total	$	201,914	$	118,987	$	30,415	$	351,316

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

	Accounts receivable			Deferred revenue
Opening (12/31/2018)	$	473,433		$	537,977
Closing (03/31/2019)		427,099			524,988
Increase/(decrease)	$	(46,334	)	$	(12,989	)

	As of
	March 31,
	2019
	(in thousands)
First 12-month period	$	293,968
Second 12-month period		173,545
Third 12-month period		63,478
Periods thereafter		36,860
Total	$	567,851